Gold Price Forecast: XAU/USD breaks key support below $1,700 ahead of US Retail Sales

• Gold price remains pressured towards yearly low on breaking a two-month-old support line.
• Firmer yields, fears surrounding China keep XAU/USD bears hopeful.
• US Retail Sales awaited with great cautious after softer CPI, PPI failed to tame hawkish Fed bets.

Gold price (XAU/USD) bears approach the yearly bottom on breaking the short-term key support line during Thursday’s early European morning. In doing so, the precious metal prints a three-day downtrend while poking $1,688 by the press time.

After an inactive start of the day, US Treasury yields pick up bids as traders brace for the European session, as well as the US Retail Sales for August. That said, the benchmark 10-year Treasury yields renew daily tops near 3.435% at the latest, after witnessing a pullback from a three-month high the previous day.

While tracking the same, the US Dollar Index (DXY) reverses the previous day’s downbeat performance around 109.90 even as the US Producer Price Index (PPI) flashed softer readings in August. US PPI declined to 8.7% YoY in August from 9.8% in July, versus 8.8% market forecasts.

The reason for the firmer yields could be linked to the hawkish Fed bets and mixed concerns surrounding China, one of the biggest customers of gold.

There appears 70% chance of the Fed’s 75 basis points (bps) rate hike in the next week, as well as the 30% odds favoring the full 100 bps Fed rate lift, as per the CME’s FedWatch Tool, as we write. On the other hand, China’s 200 billion yuan offer for stimulus contrasts with the People’s Bank of China’s (PBOC) mixed moves and fears of more economic hardships for the dragon nation, worst than 2020, also weigh on the market sentiment and the XAU/USD prices.

Amid these plays, the US stock futures remain downbeat, reversing early Asian session optimism while the yields and the DXY regain upside momentum amid cautious optimism.

Looking forward, the XAU/USD traders should wait for the US Retail Sales for August, expected to remain unchanged on MoM, to predict the metal prices properly. It should be noted that the market’s hawkish hopes stayed firmer despite the recently softer US inflation data and hence firmer Retail Sales prints could bolster the US dollar and weigh on the gold.

Also read: US Retail Sales Preview: Can consumers keep up with inflation? A breather could weigh on the dollar

Technical analysis

A clear downside break of an ascending trend line from July 21, around $1,690 by the press time, joins bearish MACD signals to favor gold sellers targeting the fresh yearly low, currently around $1,680.

In doing so, the XAU/USD bears keep their eyes on the 61.8% Fibonacci Expansion (FE) level of the bullion’s late April to early August moves, near $1,660.

Meanwhile, a corrective pullback needs validation from a three-week-old horizontal hurdle surrounding $1,728 to lure buyers.

Even so, a downward sloping resistance line from June 13 and the 100-DMA, respectively near $1,761 and $1,790, will act as the last defenses for the XAU/USD bears.

Gold: Daily chart

Trend: Further weakness expected